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How to Appeal Audit Results

It’s everyone’s goal to end an IRS audit with a “no-change” result. This means your tax return was accepted in its entirety and you incurred no additional tax liability. I’ve actually represented a few folks in audit who were granted refunds. Now that’s a joyful ending. But most audits don’t end this way; if you are not satisfied with the results from an audit, you can fight the findings.

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Unless you agree with the auditor’s report, do not sign it. The auditor will encourage you to do so to close the case and get it off his desk, but this is about you, not him. Make sure you understand where the auditor is coming from on every point. Make notes and take the report home and conduct research. Better yet, recognize when it’s time to bring in the big guns and make an appointment with a tax pro. Discuss the results to find out if anything in your favor has been overlooked. If you incurred penalties, look for ways to have them abated. Remember that the main reason for abatement of penalties is reasonable cause, discussed in last week’s article, which can save a lot of money if proven.

If you discover something to your advantage, you or the tax pro should contact the auditor and provide any evidence to prove your case. Put it in writing and fax it to him, then follow up with a phone call to find out if he will make the changes.

Auditors can make mistakes and many of them are new to the job. Tax law is complex, riddled with exceptions and qualifying points that can be easily misunderstood or misinterpreted.

Every once in a while you run into a power tripper auditor who knows the average taxpayer really doesn’t understand the code and railroads him. My eyebrows shot off the top of my head once when an auditor told me she was disallowing medical expenses simply because the amount was so large. “You can’t do that!” I cried. Her response basically was, “Watch me!” I went to her manager who seemed genuinely puzzled by the auditor’s actions. The manager allowed the deductions.

If you’ve tried to work things out with the auditor to no avail, ask for the name of the group manager and discuss the results with her. Only do this if you feel you have a valid point or can cite tax code that contradicts the auditor’s findings. Pleading to a group manager for pity or because you can’t afford to pay the additional tax liability is a waste of your time and the IRS’ time. If you cannot afford to pay the bill, look for remedies such as an offer in compromise or a temporary suspension of collection efforts because you are deemed “uncollectible.”

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You can appeal an IRS tax decision to a local Appeals Office, which is separate and independent from the IRS office you’ve been working with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, telephone or at a personal conference. See IRS Publication 556 for more information on appealing your case.

You may be reading this article and saying to yourself, “Wow, wish I’d known about this a few years ago.” Or perhaps you did appeal but no one listened. Injustice can occur at higher levels too. All is not lost. Contact a tax pro or the Taxpayer Advocate at 877.777.4778 to see if you can go for a reconsideration audit. This is usually accomplished by filing a Tax Court petition. Almost all Tax Court petitions pertaining to audits are kicked down to a senior auditor at an IRS Service Center to reexamine the return in question. Oftentimes they will compromise on the findings or reverse them completely. It takes many months to accomplish this action but collection efforts are usually suspended during the process.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know,” available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.